Stock market is shrinking in ‘serious trend’ for US economy, Jamie Dimon warns
The stock market is shrinking which is a “serious trend” for the US economy, the head of America’s biggest bank has warned.
Jamie Dimon, CEO of JP Morgan Chase, noted that the country’s number of publicly traded companies has fallen from a peak of 7,300 in 1996 to 4,300 as of today.
In his annual shareholder letter earlier this week, Mr Dimon said: “The total should have grown dramatically, not shrunk.”
Experts have said that this is due to companies increasingly opting to stay private, which happens when a PE fund purchases a public firm.
When these funds buy companies which are not public, they are kept that way. This means the funds have complete control over their companies.
This can encourage them to bolster their profits as quickly as feasibly possible for a quick sale later down the line.
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According to JP Morgan data, the number of private US companies backed by PE firms jumped from 1,900 to 11,200 over the last 20 years.
Companies which are publicly listed are subject to regulatory oversight and disclosure requirements under law.
These rules assist in making sure there is ongoing transparency about company practices and helps maintain investor confidence.
Due to fewer companies being public, the head of data and content at Renaissance Capital Matthew Kennedy warned there may be less investor trust in the market.
Furthermore, he warned companies owned by PE funds are able to obfuscate ownership, the company’s practices and profit from the public.
Mr Dimon shared his concerns about how this “serious trend” will impact the US economy long-term, arguing it could make it difficult to navigate.
He explained: “This trend is serious. We really need to consider: Is this the outcome we want?”
According to the chief executive, “the relentless pressure of quarterly earnings” could be pushing companies away from going public.
He also noted harsh reporting requirement, higher litigation expenses, expensive regulations and shareholder activism as also being potential factors.
In his company note, Mr Dimon added: “There is something very positive about detailed and disciplined quarterly financial and operating reporting.
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“But company CEOs and boards of directors should resist the undue pressure of quarterly earnings, and it is clearly somewhat their fault when they don’t.”
He also cited that companies that “disappoint” following quarterly earnings reports can come under extreme pressure.
This could result in companies disregarding what is best for a company in the long-term, the chief executive claims.
“Once shortcuts like this begin, people all over the company understand that it is okay to ‘stretch’ to meet your numbers. This could put you on a treadmill to ruin,” Mr Dimson said.